How to Choose the Right Funding Method as a Small Business 2018

People embark on new business ventures every single day, and while they may have enough capital at the start, they may not have enough to scale up. Nowadays, it’s arguably the best time in history to start your own business; there’s evolving technology, access to a mass audience on the internet, and a multitude of different advertising methods available.

However, this can also be seen as a negative. The majority of industries are incredibly saturated, and the competition is on another level, which essentially makes it much more difficult for start-ups to become successful. But, one of the things that hinder growth the most for a small business, is the lack of capital.

While you may have enough funds at the beginning to get your business operational, you may not have enough to take your company forward. So, if you’re seriously committed to the journey, then you’ll need to seek out a way to raise some money. These days, there are plenty of methods to do that, but it all depends on what makes sense for your business.

How you source extra capital, usually has an impact on the overall success you’ll experience with your business, so choose wisely…

Loan

The most obvious choice is to go with a traditional business loan. This is where you’ll utilise a service such as a bank, and ask them to borrow money. There are many different types of loans, and many companies will charge different interest rates on the repayments, so it’s recommended you do your research.

But, you’ll potentially be able to access large amounts of small business funding very quickly, which will enable you to grow your business. Although, the downside to this method is that you’ll spend a long time paying the loan back, which may limit your growth in the long run.

Crowdfunding

This is a very popular option in our current society, and that’s because it offers investors the chance to support a small business, be involved, but at the same time minimise the risk. This is because crowdfunding is designed for volume. What this means is that you’ll typically acquire multiple investors who contribute smaller amounts to achieve your desired amount.

Like loans, this method will allow you to obtain funding rapidly, but it does come with its fair share of downfalls. The main one being, that the amount you’ll be able to raise is never guaranteed. Plus, securing more than one investor is always challenging.

Equity Investment

Receiving solid investment from a wealthy outfit or individual has been a viable resource for small businesses for decades. Not only will you be able to get large sums of money, but you’ll also have that investor on board, so you’ll be able to ask them for support, guidance and help when you need it.

In addition, there’s also the fact that you’ll have their network of contacts, which could drastically improve your chances of exponential growth. But, for you as the small business owner, it does have one major negative. You’ll be sacrificing a percentage of your business that you’ll most likely never get back.

Peer to Peer

Even though this one is less common, it can still be very effective if utilized properly. For instance, it can be a very quick way of generating a lot of capital in a short space of time, as you’ll be asking a plethora of unique sources. Additionally, if you’re asking people you know, then there’ll probably be no crazy interest rates, or loss of equity.

On the other hand, it could also be very time-consuming and demoralizing. If you’re spending time querying tons of different people, and they’re all saying no, then that can demotivate you significantly. Also, this method doesn’t guarantee any funds whatsoever.

Overdraft

Despite this not being a recommended way of getting funding, it’s still an alternative if you’re struggling to stay afloat. It’s almost an emergency fund, and you’re basically liaising with the bank, to set up a limit of how much of the bank’s money you can spend.

With this funding method, you’ll most likely not be able to access enough to grow, and will only grant you enough to get out of trouble. So, you’ll need to accompany this with one of the others. Furthermore, the repayments on an overdraft are often very expensive, and the overdraft itself can be removed at any time.

Sam Makad is a business consultant. He helps small & medium enterprises to grow their businesses and Overall ROI. You can follow Sam on Twitter.